International Organisation for Knowledge Economy and Enterprise Development
IKED - International Organisation for Knowledge Economy and Enterprise Development

Activities

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..:: The Role of Venture Capital, Global Trends and Issues from a Nordic Perspective
Venture capital is not a panacea for higher growth and increased economic dynamism. But it is becoming increasingly important for many countries around the world, alongside other forms of funding, for start-ups and early-stage business expansion and in the presence of appropriate conditions for restructuring, technology development, diffusion and entrepreneurship. Yet a number of factors are holding back venture capital’s economic contribution. It is up to individual countries to identify their own problem areas and ways forward, and here ample opportunities exist to learn from the experiences of others. Whereas most attention tends to be paid to the US experience, IKED’s work in this area has examined conditions in a range of areas. A report published in 2007 takes stock of developments particularly in the Nordic countries, and draws some lessons from other countries as well.

Turning new technology and knowledge into commercial achievements is a cumbersome and risky task. Though national venture capital markets differ widely in terms of their characteristics and performance, they are becoming more responsive to the specific demands of national and regional industrial structures. Up to now, the US venture capital industry has been studied most extensively and efforts often aim to replicate this model elsewhere. Yet Sweden and Denmark are both ranked among the strongest in the world in terms of innovation and the knowledge-based economy. Both countries’ venture capital markets have expanded strongly in recent years and are now mature and dynamic.

Based on global trends and a comparative assessment of Nordic venture capital markets, “THE ROLE OF VENTURE CAPITAL, GLOBAL TRENDS AND ISSUES FROM A NORDIC PERSPECTIVE” report concludes that more should be done to enable diversified flows of international and cross-border investments in different countries. The public sector has an important role to play in the early stages of enterprise formation and technology commercialisation, and must take steps to cherish the development of more mature venture capital markets. However, governments must act on market conditions and arrange for socially motivated risk reduction without crowding out private initiatives if they are successfully to promote public investment strategies. Further, governments often play a counter-productive role through a range of factors affecting entrepreneurship and industrial renewal. Reforms are needed to encourage a bottom-up spirit of renewal.

For the Nordic countries specifically, the report examines the surge in Sweden’s private equity market, which was one of the most expansive in the world in the 1990s and showed remarkable resilience post-2001. In Denmark, the public sector has boosted its seed activity and higher investment has been allocated to innovative, early-stage companies. Both Sweden and Denmark should, for example, dismantle restrictions on institutional investors and reduce taxes on capital gains to encourage investment by business angels and entrepreneurs. In a cross-border context, the Öresund region provides an example of transnational processes being hampered by the weakness of seed capital in southern Sweden, of exit markets in Denmark and of effective mechanisms for cross-border investor and entrepreneur networks.
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